A blog about crafting compelling propositions and cultivating commercial nous

A family friend who works in the automotive industry visited for a week and we spent several pleasant evenings talking about innovation in this vertical…over wine.

There is so much happening in automotive, we get bombarded daily with news about autonomous vehicles, drone deliveries, Tesla’s latest car battery technology, you name it.

Our friend recommended a very intriguing event, BMW Welcomes, held at BMW Welt in Munich, Germany, on June 23. BMW Welcomes an innovative event series to give BMW’s special customers unique knowledge about the latest innovations.

This year’s topic was Future Mobility where BMW invited the leading transportation futurists to present on the way we will transport ourselves in the future by significantly increasing range, speed and acceleration.

Frank Salzgeber, Head of Technology Transfer Program Office, European Space Agency

Daniel Wiegand, Startup presentation: Lilium aviation

Dirk Ahlborn, CEO Hyperloop

Mariana Avezum, Startup presentation: WARR Hyperloop

Oliver Heilmer, Head of Interior Design BMW, BMW Group

Personally I recommend Hyperloop’s CEO presentation – absolute must-see if you are interested in the technology that is going to shape our lives in the next decades. It is 41 minutes long, but well worth the watch.

Those days Internet of Things (IoT) is the topic of choice when technology people meet to discuss innovation and the next big idea. Being all-encompassing and omnipresent as a theme, Internet of Things gets injected in all forums around hardware, connectivity and value added applications – from everyday life to the cloud.

What is Internet of Things after all?

Since its beginnings until today, Internet has been a network connecting people to other people, to content and to services. Internet has evolved to allow more devices to access it – first computers, then mobile phones, then wearables, and so on. It is still a network in its core, with its protocols, language and rules.

Internet of Things is not anything different, still a network but this time allowing machines and sensors to track, monitor and relay their data to other machines or to people to fulfil an action – e.g. make a payment, send an alert, do a phone call, start a process.

IoT is so wide-ranging as a concept, that the current approach is to slice it into segments based on its applications. You can see three categories such as

Home and Personal IoT – this is probably the most prominent segment generating news every day, related to the Smart Home and personal-related care and analytics.

Platforms IoT – all areas covering connectivity and networking, data processing, cloud, interfaces between the machines and the networks, APIs…

…And probably many more segments will appear in time.

Source: The Evolution of the Internet of Things, Casaleggio Associati (2011)

Value in Internet of Things

It is interesting to look out for business models that monetize the value of new technologies, such as IoT.

According to ABI Research which assessed the value chain for IoT, only 3% of its value lies in the connected hardware, 20% is in the connectivity, while 77% of the value will be in value added services. This is not a surprising split given that the potential revenue from sending data from a machine to another machine would be a fraction of a penny, and the margins will be even less.

I am intrigued how IoT will enable commercial innovation with the aim of providing customers with greater levels of flexibility and peace of mind.

So far, most of the monetization models discussed by service and hardware providers are fairly common and well tested by time. Undoubtedly, these will be rejuvenated but also superseded by new approaches to generate revenue. So which the core business models, that will drive monetization of IoT products and services?

Business models making Internet of Things tick

Usage based, also known as Pay-as-you-go

A very well-known model where the customer pays only for the amount of service used in a given period, with no commitment attached such as being locked into a subscription contract. It is easy to envisage how personal use of smart devices where the consumer does not want to own the device or industrial use of connected machines that are temporarily hired is linked to usage-based revenue models.

Do it for me(DIFM)

In my book, this model is going to experience an absolute renaissance as IoT matures. Businesses in all segments of IoT will compete to offer services to install, maintain, customise and repair the smart devices connected to the network. Given the sophistication of those devices, customers will be increasingly willing to use specialists to upgrade and maintain their devices plus further customise their gadgets.

In addition, the DIFM model will also cover Remote monitoring where companies and consumers may delegate the monitoring of their smart estates in order to prevent glitches and to cover support. This will further increase customer stickiness.

Freemium

No business model attracts more customers than free! In IoT world, any basic version of the connected product may be given away for free in the hope of eventually persuading the customers to pay for a premium version carrying more features and functionality. Skype is a good current example of that. Its free version attracts highest volume of customers, while the smaller number of paying ‘premium’ customers generate the revenue, cross-financing the free offering.

Leveraging customer insight using data analytics

As security of personal and corporate data is more paramount than even, we can see even today ventures where data aggregation is used to predict or recommend a set of actions to an end customer. Given how many sensors with collect, store and pass on data from connected devices, there will be enormous amounts of domain data that can be used to create insights that help consumers improve their lives – e.g. energy efficiency tips or companies to meet business targets – e.g. supply chain efficiency.

Product as a service

An interesting report I found from Deutsche Telecom (see link below) says that “75 percent of new cars are now purchased through a finance agreement, with customers essentially paying for the personal experience of ‘owning’ a car rather than paying the one-off, upfront price”. Fast forward to the future, IoT will make this model even more mainstream. Instead of purchasing the smart hardware, companies and consumers may only pay for the experience of owning it for a set period of time before replacement with a newer model. Judging from leasing margins today, this may be a lucrative model for revenue generation.

Transactional

This is the oldest trick in the book. You buy a product or a service, you pay for it and both sides in the transaction go on their merry ways. Just as you buy your Apple phone or Surface tablet, nothing can be compared to owning a new gadget….until the new model arrives. I believe manufacturers and device brands will try to skim the market for as long as possible selling smart devices as their novelty and exclusivity may drive higher margins.

Although this list covers some of the main revenue generation models, it is far from exclusive! If you work in IoT areas and you deal with its monetization and product strategies, I will be interested to lean which model will work for your company.

Over the years working in proposition development, I have developed a hobby to scout profitability data across different industries. I find the comparisons between industries quite interesting, especially for the Technology and retail verticals I work in – software, information services, and telecoms.

Apart from wider professional interest, margin data and analysis help greatly when developing a new proposition as these serve as a benchmark to improve the business, but also to explore different business models and commercial tactics.

I find the question on “what’s a reasonable margin for my business” a bit strange, as any business operates in a larger framework which more or less gives the settings, yet any company is empowered to create a unique business model in order to extract higher profit margins.

profit = revenue – cost of people – general expenses

Service industries command higher margin as their key differentiator is human capital that creates highly specialised output in the form of advise or intangible products, for which customers pay a premium. Their overhead and ‘keeping the lights on’ costs are relatively low and predictable over time, so service businesses do not need to spend cash on costly capital investments or high recurring costs.

Another parameter of high-margin businesses is the perception of exclusivity they create around the goods they sell. Exclusive products are difficult to compare or replicate, so like-for-like competition is difficult. Jewellery and fashion are good examples of industries whose end product maintains high margins. In technology, a mention on Apple’s products is enough to illustrate what ‘exclusive’ products mean in terms of design and customer experience.

Why a higher profit margin is better than lower margin?

We know that profit margin is absolutely key for company growth, but growth is a complex construct as it is dependent on many variables. Higher profit margin allows businesses to:

weather the storms of economic decline. A low margin may be easily obliterated in a downturn, dragging the company into bankruptcy

attract more customers – always a good thing!

attract better talent, as employees prefer working for growing companies

attract more investors, who value how the company keeps taps on costs to generate a higher profit

Profit margin that is higher than your competitors’ is something that catches the eye of investors and analysts. Amazon’s recent Prime Day is a good example of how the biggest online retailer zooms into items from the Fashion category, to diversify its product mix and increase its minimalistic margins.

Spot on. When I interview people for such roles and ask them for examples to elaborate on these behaviours, I ask myself the same questions – is having those skills enough, have you really practiced applying them in different situations?

What good looks like when working in business development

Here is my take on how a strong business development manager or commercial, proposition professional live those behaviours daily, with examples from the organisations I have operated in.

I am very interested to hear if you find them helpful and easy to practice in your business organisations!

Owner mindset, giving everything you got

You always act the champion of the project, product or the proposition. And you use your determination to deliver it.

What good looks like:You notice when there is discord or procedural delays and you use an appropriate level of energy to remove obstacles standing in the way of delivering the project.

Structured thinking, making things simple and clear

You are able to package up choices or options with clear pros/ cons and make a recommendation.

What good looks like: You tell a concise story relevant to the audience instead of telling the entire story that includes all issues. And you make it clear where subjective judgements have been made.

Also, you can quickly immerse in complex issues and become a “one day expert” versus leaving the complexity to others.

Financial skills, looking for the bottom line

As discussed before, a solid understanding of the relevant profit, revenue, cost drivers, and volume metrics is a hygiene factor for anyone doing business development and commercial propositions.

What good looks like: You can identify the “killer questions” that enable a reasonableness judgement. Then you identify ways to objectively assess those killer questions.

Also, you make effective judgements on what is important and what is less so and on the back of that you make quick and effective “ball park” calculations to enable this.

A strong manager does not wait for the perfect information before making judgements on the options.

Drive and passion, setting the high standard and trying to improve

Irrespective to organisation size or complexity, a good manager needs to have deep understanding of the processes and people needed to get the business opportunity delivered.

What good looks like: You understand both the organisation’s strengths and its weaknesses and use this to shape the delivery approach (this is one of the examples I always seek to explore in candidates).

You proactively seek out critical success factors to deliver the proposition or the deal instead letting others do their jobs and hoping it all works out nicely.

Customers come first, and you are their champion

There are numerous internal barriers to project the voice of the customer, usually these are non-intentional, but very real! Examples are internal procedures, governance, regulatory demands, so making sure you marry organisational demands to the customers’ needs is an absolute must.

What good looks like: You proactively reach out to all functions (eg. Marketing, Sales, Finance, Delivery, Legal) to gain their input and ensure their needs are considered. Then, you ensure there are “no surprises”, which means lots of communication to make sure that different views are explicitly understood.

You are very confident in using this knowledge to request that other areas deliver, versus not making an explicit request to another area for fear of not having the authority to request.

Doing what you say you will do

People rarely enjoy being challenged, but in business development and propositions it is really the norm the opportunity to be internally debated and challenged until all sides agree this is the right thing to do. Welcome challenges from anyone that might help improve what you do!

What good looks like: You present the arguments in a balanced way that acknowledges legitimate views from all sides. Also, you probe to understand the views of others, to the extent that they can accurately articulate the facts.

And finally, you balance being fair and open minded with sticking to a strong argument versus being afraid of confrontation.

What good behaviours look like in your practices? If you want to share tips and stories and lessons learned, please feel free to send me your comments.

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At the OECD Forum 2016 in Paris this June, the Deputy Secretary-General revealed the newest global research on attracting women in Science, Technology, Engineering and Manufacturing (STEM) careers.

It is 2016…Still very difficult to attract and retain young women in STEM!

The problem areas have been well known for years – teaching methodologies, research subsidies, employee policies, and gender pay gaps. It is a long list of areas to tackle, but for me

It all starts at home.

The attitude towards studying mathematics and science does not start at school, it starts well before first grade, when parents consciously or sub consciously start to stereotype their little girls –

During role play…hairdressers, nurses, princesses. Does this sound familiar? It certainly does for me when I was little,

When observing their first role models – mum and dad at home,

When self-doubt about school subjects and grades kicks in at school,

And then later in life when education options are discussed at home.

Do you know that first grade girls believe their performance in math in lower than boys? When actually it isn’t.

Up to 4th grade, boys and girls perform equally at maths. Yet, the seeds of perceived inequality are already planted.

Working with parents is where work should start first and progress over the years. Start with showing these biases and making parents aware. Discuss in the community and present to parents educational and career paths in science, tech and engineering while their children are in primary school, so they can chat at home about what it takes to be a data scientist, software engineer, geneticist, or astronaut.

I am a mother and have worked in technology all my career, I see it every day at home and with close friends – girls and then young women are being slowly pigeon-holed away from sciences, math and coding. We as parents need to change that and work with teachers and educators, instead of just passing the baton to schools and universities.